‘Significant disruptions’ forecast in 10 to 15 years as cost of renewables, energy storage plummet’

At left, an oil pumpjack in operation. At right, the Shams 1 concentrated solar power plant in Abu Dhabi. A federal government think-tank is projecting a fairly rapid shift toward renewables. (Left: Andrey Rudakov/Bloomberg, Right: EPA)

Canada’s status as an “energy superpower” is under threat because the global dominance of fossil fuels could wane faster than previously believed, according to a draft report from a federal government think-tank obtained by CBC News.

“It is increasingly plausible to foresee a future in which cheap renewable electricity becomes the world’s primary power source and fossil fuels are relegated to a minority status,” reads the conclusion of the 32-page document, produced by Policy Horizons Canada.

The little-known government organization provides medium-term policy advice to the federal bureaucracy, specializing in forecasts that peer a decade or two into the future.

The document was obtained by CBC News under an access to information request and shared with two experts — one in Alberta, one in British Columbia — who study the energy industry.

Both experts described its forecasts for global energy markets as more or less in line with what a growing number of analysts believe.

“It’s absolutely not pie in the sky,” said Michal Moore from the University of Calgary’s School of Public Policy. “These folks are being realistic — they may not be popular, but they’re being realistic.”

Marty Reed, CEO of Evok Innovations — a Vancouver-based cleantech fund created through a $100-million partnership with Cenovus and Suncor — had a similar take after reading the draft report.

“You could nit-pick a couple of items,” he said. “But at a high level, I would say the vast, vast majority of what they wrote is not even controversial, it’s very well accepted.”

Caution advised in long-term pipeline investments

Given the time frames of a decade or more in the report’s forecasts, its language is couched heavily in “ifs” and “coulds.”

Its overall conclusion, however, urges caution when it comes to long-term investments in pipelines and other oil and gas infrastructure.

Such investments “could be at high risk of becoming economically unviable as prices in renewable electricity further decline,” it warns.

“At a minimum, this plausible future would suggest that governments ensure that the risks of further investments in oil and gas infrastructure be borne by private interests rather than taxpayers,” the report reads.

Renewables to become cheaper than fossil fuels

At the core of the report’s forecasts is a growing number of indicators that suggest growth in the world’s demand for electricity — particularly renewable-based electricity — will outpace other energy types, while the costs of its production and storage fall faster than previously believed.

The demand is expected to be driven largely by the emerging and rapidly urbanizing middle class in developing countries.

Wind and solar systems have the advantage of being “highly scalable and distributable,” the report states, making them appealing for communities of virtually any size, with or without an existing electrical grid.

As a result, emerging economies in Latin America and Africa may follow a different development path than the West and “leap-frog” directly to renewables as a primary energy source in a relatively short timeframe.

“Although any individual country may lack the optimal conditions for every type of renewable electricity, all countries are likely to have at least one or more options to produce electricity from renewables that will be cost comparative or cheaper than generation by fossil fuels,” the report reads.

Reed said that trend is already beginning in some parts of the world.

“We just saw Saudi Arabia award a major solar contract at three cents a kilowatt hour. We just saw Mexico do the same thing … at five cents a kilowatt hour,” he said.

“You can’t bring on a new coal plant or natural gas plant at that price. You sure can’t build a new Site C hydro dam at that price.”

Electric cars to become ‘fully competitive’

Batteries and other forms of energy storage technology are also becoming cheaper and more capable, according to the report, making electricity a more versatile option for residential and commercial use — as well as for transportation.

The report states Tesla Motors has been producing lithium-ion batteries for both cars and homes at a cost of roughly $300 US per kWh, a price point the International Energy Agency previously predicted wouldn’t be possible until the year 2020.

“Battery manufacturers in Asia are building battery factories at similar scales to Tesla’s Gigafactory that will triple battery production by 2020,” the report continues.

“These economies of scale are expected to further reduce the cost of batteries to $150 US per kWh by 2020. At this price point, electric vehicles will become fully competitive with those powered by internal combustion engines.”

From his vantage point, Reed said the shift in the automotive market is already apparent and the pace of change is only likely to accelerate.

“You’re seeing literally hundreds and hundreds of millions of dollars being invested by the automakers into electric vehicles,” he said.

“The Chevy Bolt came out this year and it’s got a 200-mile [320 km] range at a price point below $40,000. Tesla is the No. 1 selling luxury vehicle in the world now. This is happening.”

Challenges — and innovations — with ‘vast storage’

One criticism Moore had of the report was what he described as a tendency to “gloss over” challenges that still exist with renewable energy on a large scale.

“They just act as though the more renewable energy you build, the more people will use, and the more fossil fuel we’ll take offline, and we’ll all be better off — and it just doesn’t work that way,” the U of C professor said.

“Renewable technologies are not substitutable for fossil technologies one-to-one.”

Due to the intermittent output from solar panels and wind turbines, making a major shift to renewables would require “vast, vast storage technology,” Moore said, which adds to the cost and viability of such a change.

Reed, however, said there are various ways to tackle the problem, and solutions go beyond merely building better batteries.

“You certainly need an energy-dense battery if you want to have a car, but for electrification of the grid, you actually don’t need energy-dense batteries,” he said. “What you need are low-cost energy storage systems that meet the needs of whatever system you’re trying to build.”

As one recent example, he pointed to the Advanced Rail Energy Storage (ARES) project now underway in Nevada.

While a battery uses chemicals to store energy, ARES uses gravity.

The idea involves a network of rail lines built on a grade. On the tracks sit a fleet of train cars carrying heavy loads of rocks and gravel. The cars have electric motors and are connected to an electrical grid powered by wind turbines and solar panels.

When there is a surplus of energy from the grid, the train cars drive up the tracks. When the solar and wind output diminishes, the cars roll back down the hill, their electric motors acting as generators and supplementing the electrical output.

“It’s remarkably simple, inexpensive, and meets the needs,” Reed said of the technology.

Oil could lose ‘commodity status’

All of this doesn’t add up to the end of fossil fuels, according to the report, but it does suggest Canada should rethink the value and applicability of its natural resources as “demand for oil could peak sooner and decline faster than expected.”

One of the more extreme scenarios the report considers is a world in which the supply of fossil fuels exceeds demand for an extended period of time, which the authors say could lead to a loss of “commodity status” for oil, coal and natural gas.

“Rather than being price-takers from suppliers, consumer countries could become price-makers on different sources of oil as suppliers adjust pricing to maintain share of a diminishing and more discriminating marketplace,” the report states.

“Embodied carbon in the production of the fuel will likely be the first discriminator to be widely adopted.”

In other words, fossil fuels that produce more greenhouse gases in the extraction process may fetch a lower price, as buyers become willing to pay a premium for lower-emission grades.

This scenario was one point in the report that both Moore and Reed found implausible.

“I think that was a bit of a stretch,” said Reed.

“I see no evidence to support this notion that it’ll be bifurcated by environmental criteria. Consumer behaviour doesn’t lend itself this way.”

Moore said he can’t see that “happening any time soon,” as no market mechanism exists to attach these kinds of attributes to fossil fuels.

New minerals to be of strategic value

Moore did agree with the report’s forecast that oil will begin to be supplanted by natural resources of even higher value.

Those include lithium, rare earth metals and other key minerals required to produce batteries, photovoltaic cells and electric motors.

The document notes Canada is lacking in such minerals, while Bolivia, Argentina and Chile hold some of the largest lithium reserves, and China and Brazil have nearly 60 per cent of the known reserves of rare earth metals.

The report even warns of the potential emergence of new cartels that could manipulate the market price of these valuable minerals.

“You’re likely to see some pretty big battles fought over rare earths,” said Moore, who noted Canada may have undiscovered reserves of its own.

‘Some oil is likely to remain in the ground’

While its relative value as an energy source may diminish, the report acknowledges oil “will still be a significant component of the global energy mix, at least in the near future.”

It says that “some oil is likely to remain in the ground,” but opportunities still exist for Canada to extract and sell petroleum from oilsands deposits, even under the extreme scenario of the market splintering oil into grades based on its relative carbon footprint.

Actual greenhouse-gas outputs of some Canadian oil resources “are lower than international reputation would suggest,” the report notes, making its viability as much a matter of marketing as technology.

Regardless of what happens in the energy sector, Reed expects oil will still be in demand for other purposes.

“Non-transportation uses of petroleum are growing quite rapidly,” he said, noting Alberta may be particularly well positioned to expand into the production of specialty agriculture chemicals that are derived from oil.

Moore said everything from asphalt to plastics to paraffin wax will guarantee a market, of some type, for petroleum, for decades to come.

“We’re going to need hydrocarbons for a long, long, long time into the future — just not necessarily as a primary fuel source.”

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